Upgrading Onyx Pharma to Buy

Onyx Pharmaceuticals, Inc. (ONXX - Analyst Report) delivered strong financial performance of its primary drug, Nexavar, in first quarter 2008. This is mainly attributed to Nexavar’s penetration into the liver cancer market, while Nexavar’s share in the kidney cancer market has stabilized despite heavy competition from Pfizer, Inc. (PFE - Analyst Report) and Wyeth (WYE).

We believe Nexavar sales will continue to grow over the next several years since the label has expanded to liver cancer. Nexavar has the potential to become a blockbuster for Onyx. Sales of the drug grew dramatically in first quarter 2008. Total Nexavar sales came in at $151.9 million, up 149% year-over-year and 21.5% sequentially. US sales increased to $51 million in first quarter 2008, up 97% year-over-year and up 18.8% sequentially. International sales reached $101 million, up 188% year-over-year and up 23.2% sequentially.

The EU and the US approved Nexavar for first-line treatment of liver cancer in the fourth quarter 2007. In Asia, South Korea has approved Nexavar for liver cancer and approval in China for liver cancer is expected in the second half 2008. Other international filing is underway.

We believe Nexavar sales will be further boosted during the rest of 2008 and beyond due to this new indication. Label expansion for Nexavar into other cancer indications such as breast cancer is underway. We also believe that sales of Nexavar will reach $1 billion in 2010.

The current share price is attractive, and we recommend investors buy its shares at these levels. We upgrade Onyx shares from Hold to Buy with a price target of $46. We arrive at our price target of $46 by using biotech industry average P/E of 38x, multiplied by our estimated 2010 EPS of $1.75 (excluding share-based expenses), discounted at 20% for two years.

Read the full analyst report on ONXX.

Read the full analyst report on PFE.

Read the full analyst report on WYE.

Read the full analyst report on ONXX

Read the full analyst report on PFE

Read the full analyst report on WYE